Qualcomm seemed to get a sympathetic ear Thursday from a panel of U.S. Ninth Circuit Court judges hearing the San Diego company's appeal of last year's verdict that it violated anti-monopoly laws.
During oral arguments in San Francisco, the three-judge panel asked questions that appeared skeptical of some of the legal underpinnings of the lower court's finding last spring.
The judges probed whether Qualcomm's conduct rose to the level of an antitrust violation. They pushed a lawyer from the U.S. Federal Trade Commission for precedents that supported San Jose District Judge Lucy Koh's ruling against Qualcomm.
"Anti-competitive behavior is illegal under the Sherman Act. Hyper competitive behavior is not," said Judge Stephen Murphy, who is a guest judge from Michigan. "This case asks us to draw the line between the two."
Brian Fletcher, special counsel for the FTC who is a former assistant solicitor general, said Qualcomm's business practices are anti-competitive because it leveraged its monopoly power in one market -- cellphone chips -- to force smartphone makers to pay unreasonably high prices in another market -- patent royalties.
"The critical thing that distinguishes it from what is normal in business is (Qualcomm) is not competing on the merits," said Fletcher. "If they make it hard for competitors because they make a better product or sell it for less, no problem. That is not the case here."
Qualcomm is seeking to reverse Koh's findings that its "no license, no chips" policy and other business practices were anti-competitive.
There is a lot at stake. Koh required Qualcomm to drastically change its business model around patent licensing.
Today, Qualcomm licenses its trove of 140,000 mobile patents to smartphone makers, charging a percentage of the price of the phone up to a $400 cap.
Koh's injunction would force Qualcomm to license patents based on the price of the smallest salable unit, essentially the chips inside mobile phones.